Hurricane Sandy, One Year Later: Assessing the Economic Cost

AP, Mark LennihanA worker walks the roof line of a house under construction in the Breezy Point community of New York's Queens borough on Wednesday, July 24, 2013. It is the first house to be rebuilt in the beachfront community where more than 110 homes burned to the ground during Superstorm Sandy in October 2012.
The intersection of hurricanes and economics is a heartless, insensitive place. If it can be avoided, you shouldn't go there.

We're referring specifically here to Hurricane Sandy.

For the Country as a Whole, Just a Blip on the Economic Radar

As we approach the one-year anniversary of the second most destructive storm in American history, thousands of people are still displaced from their homes, businesses continue to struggle, and municipalities are squeaking by on a fraction of the revenue that their now-devastated property tax rolls once generated.

Yet, from a macroeconomic standpoint, it's almost as if Sandy was nothing more than a figment of our imagination.

According to the Bureau of Economic Analysis, the domestic economy grew by a "very sluggish" 0.4 percent in the final quarter of last year -- the same period in which Sandy wrought havoc up and down the Eastern seaboard. It followed a 3.1 percent rate of growth in the third quarter.

While it's tempting to conclude that the storm had at least something to do with the sharp deceleration, the reality is that it didn't.

"Any effect superstorm Sandy may have had on aggregate economic activity in the fourth quarter of 2012 was well within the bands of the normal amount of 'noise' in quarterly GDP growth rates," concluded a handful of economists at the Federal Reserve Bank of New York earlier this year.

How Is This Possible?

This was a storm that caused almost 150 deaths. A storm that damaged or destroyed an estimated 650,000 homes. A storm that swept away $75 billion in physical capital, second only to Hurricane Katrina in 2005.

What's the disconnect here?

The answer is that destruction sows the seeds of growth, however paradoxical that may sound.

There's no better example of this than Home Depot (HD), which makes a living from selling supplies to homebuilders and renovators.

%VIRTUAL-article-sponsoredlinks%Comparable sales at Home Depot locations open at least 13 months shot higher by 7.1 percent in the three months following the storm. "New York and New Jersey were our best-performing regions, driven principally by Hurricane Sandy-related repair activity," said CEO Frank Blake.

Home Depot's chief financial officer told analysts that the chain generated $242 million in fiscal fourth-quarter revenue from "storm sales" alone -- far exceeding the $130 million that it earned in the aftermath of 2011's Hurricane Irene.

But -- and this is an important point -- the fact that some businesses and institutions profited from the storm, does not make up for the losses suffered by its hardest hit victims.

Building Foundations on Quicksand

As the one-year anniversary approaches, the media is shining an increasingly bright light on the slow rate of progress in places like Long Beach Island, N.J., and Breezy Point in Queens, N.Y.

A family profiled by The New York Times this week still owes $370,000 on a mortgage for their "gutted one-story bungalow... that engineers and FEMA inspectors agreed was damaged beyond repair in the storm." Yet, their flood insurance company concluded that they were due only $93,000, a fraction of what it will cost to rebuild.

And stories like this are legion.

On top of this, countless municipalities throughout the region have been forced to cut programs and services that were once funded by property tax rolls. Two New Jersey counties alone have seen property values fall by $5 billion thanks to storm damage. The net result has been to rob the local governments and schools of an estimated $77 million in revenue.

Assessing Sandy's Economic Legacy

At the end of the day, questions surrounding Hurricane Sandy's economic legacy aren't subject to easy answers. Some businesses benefited. Some people remain deeply affected. And if the macroeconomic scars were minimal, at ground level in the towns most affected, the storm is still far from over.

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The 11 Costliest Hurricanes in U.S. History

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Hurricane Sandy, One Year Later: Assessing the Economic Cost

The devastation wrought by Hurricane Sandy is a good reminder that the strength of a storm is less important than where it makes landfall. Despite its enormous size, it was classified as only a Category 2 storm at its peak, and by the time it made landfall in the Northeast, it had been reclassified as a "post-tropical storm" (a designation that will force insurers to pay more in claims than they would have for a storm classified as a hurricane).

Hurricane or not, though, Sandy's landfall near New York City and other major population centers in the region immediately vaulted it onto the list of the most expensive storms in the nation's history. While the first wave of cleanup and recovery continues throughout the region, there's little doubt that the massive flooding and wind damage associated with Sandy will ultimately cost tens of billions of dollars, to say nothing of the human toll.

Click through our gallery to find out how Sandy stacks up to other devastating Atlantic storms.

* - Costs adjusted to 2010 dollars on basis of U.S. Dept. of Commerce Implicit Price Deflator for Construction. The storms from 2011 and later are not adjusted. The National Climatic Data Center (NCDC) rates Hurricane Katrina's damage at $133.8 billion 2007 dollars.

Hurricane Irene crippled 10 states during its slow climb up the Eastern Seaboard, causing massive flooding and power outages. The brutal storm made landfall in North Carolina and traveled to Maine.

Billy Stinson (C), his wife Sandra Stinson and daughter Erin Stinson (R) comfort each other as they sit on the steps where their cottage once stood before it was destroyed by Hurricane Irene on Aug. 28, 2011 in Nags Head, N.C.

The cottage, built in 1903 was one of the first vacation cottages built on Roanoke Sound in Nags Head. Stinson had owned the home, which is listed in the National Register of Historic Places, since 1963. "We were pretending, just for a moment, that the cottage was still behind us and we were just sitting there watching the sunset," said Erin afterward.

After striking Mexico from the Caribbean Sea, Wilma turned northeast, strengthened over the Gulf or Mexico, and made landfall near Cape Romano, Fla., on Oct. 24 as a Category 3 hurricane. The eye crossed the Florida Peninsula in less than five hours, and it moved into the Atlantic just north of Palm Beach as a still forceful Category 2 hurricane.

Pictured: A public phone is surrounded by flood waters near a block of hotels as Hurricane Wilma lashes Cancun, Mexico, on Oct. 21, 2005.

Pictured: NEW YORK, NY - OCTOBER 29: Rising water, caused by Hurricane Sandy, rushes into a subterranian parking garage on October 29, 2012, in the Financial District of New York, United States. Hurricane Sandy, which threatens 50 million people in the eastern third of the U.S., is expected to bring days of rain, high winds and possibly heavy snow. New York Governor Andrew Cuomo announced the closure of all New York City will bus, subway and commuter rail service as of Sunday evening.

Katrina unleashed torrential rains and a potent storm surge that led to disastrous flooding that left about 1,600 people dead, destroyed thousands of homes and marred the presidency of George W. Bush, whose administration was severely criticized for its handling of the crisis.